Confluent, Inc. (CFLT) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call indicates strong growth in key areas like subscription and cloud revenue, along with significant customer additions and DSP adoption. Flink's rapid growth and strategic initiatives like CSP takeouts and sales compensation alignment suggest a positive outlook. Despite some pressure on NRR and GRR, optimistic guidance and operational enhancements provide a positive sentiment, likely leading to a stock price increase over the next two weeks.
Key Financial Performance
Subscription Revenue $270.8 million, grew 21% year-over-year. Growth attributed to strong performance in financial services and sustained momentum with OEM partners.
Confluent Platform Revenue $120.3 million, grew 12% year-over-year. Growth driven by solid performance in financial services and OEM partnerships.
Cloud Revenue $150.5 million, grew 28% year-over-year. Growth impacted by optimization efforts and a reduction in usage by an AI-native customer moving towards self-management.
Operating Margin 6.3%, increased by 570 basis points year-over-year. Improvement due to focus on driving efficiencies across the company.
Adjusted Free Cash Flow Margin 3.9%, increased by 270 basis points year-over-year. Reflects operational improvements and cost management.
Net Income Per Share $0.09, based on 367.3 million diluted weighted average shares outstanding. Reflects improved profitability.
Cash, Cash Equivalents, and Marketable Securities $1.94 billion, reflects strong cash position.
$20k+ ARR Customers 2,497 customers, grew approximately 8% year-over-year. Represents more than 95% of ARR.
$100k+ ARR Customers 1,439 customers, grew 10% year-over-year. Accounts for greater than 90% of ARR.
$1 Million+ ARR Customers 219 customers, grew approximately 24% year-over-year. Reflects strong growth in high-value customer segment.
Net Revenue Retention (NRR) 114%, reflects ongoing consumption headwinds in the cloud business.
Gross Retention Rate (GRR) Close to 90%, indicates strong customer retention.
You have reached the limit. Sign up to access full content
Get started
Operating Highlights
Flink ARR: Grew approximately 3x over the past 2 quarters, approaching $10 million in ARR. Includes contributions from both Confluent Cloud and Confluent Platform.
WarpStream: Customers increased their spend with Confluent by 30% while decreasing overall CSP infrastructure costs by roughly 50%. Used for high-volume logging and telemetry workloads.
Partner Ecosystem: Expanded partnerships with Infosys, Jio, SCCC, Databricks, EY, and launched an AI accelerator program. Partner-sourced business accounted for over 20% of revenue.
Geographical Revenue: Revenue from the U.S. grew 15% to $164.3 million, while revenue from outside the U.S. grew 29% to $117.9 million.
Operational Enhancements: Improved coverage ratios between AEs, SEs, and post-sales roles, leading to a 40% increase in late-stage pipeline progression. Accelerated build-out of DSP specialist team for multiproduct selling.
Cost Efficiency: Subscription gross margin increased to 81.5%, and operating margin rose to 6.3%. Adjusted free cash flow margin increased to 3.9%.
AI Workloads: Production AI use cases expected to grow 10x this year. Examples include AI agents for regulatory workflows, real-time telescope alerts, and AI-driven search and content generation.
Streaming Market Leadership: Confluent Platform's strength driven by financial services and partner traction. WarpStream consumption grew as customers migrated latency-relaxed workloads from open-source Kafka.
You have reached the limit. Sign up to access full content
Get started
Risk or Challenges
Cloud consumption growth: Larger customers are continuing optimization efforts and adopting new use cases at a slower pace. Consumption growth is expected to remain below prior years for the second half of the year.
AI-native customer shift: An AI-native customer is moving towards self-management of internal data platforms, reducing their Confluent Cloud usage. This will significantly reduce total spending with Confluent starting in Q4.
Cloud revenue growth: Cloud revenue growth rates are expected to be dampened in Q4 due to the reduction in spending by the AI-native customer.
Consumption headwinds: Ongoing consumption headwinds in the cloud business are impacting growth, with month-over-month trends trailing prior years.
Competitive pressures: Efforts to displace CSP streaming offerings are ongoing, but competition remains a challenge despite high win rates.
Operational execution: Efforts to improve coverage ratios and build out DSP specialist teams are ongoing, but these changes will take time to deliver meaningful results.
You have reached the limit. Sign up to access full content
Get started
Guidance & Outlook
Consumption Growth Outlook: The company expects consumption growth for Confluent Cloud to remain notably below prior years for the remainder of 2025 due to continued optimization efforts by customers.
Subscription Revenue Guidance: For Q3 2025, subscription revenue is expected to be in the range of $281 million to $282 million, representing approximately 17% growth. For fiscal year 2025, subscription revenue is projected to be between $1.105 billion and $1.11 billion, reflecting approximately 20% growth.
Non-GAAP Operating Margin: The company anticipates a non-GAAP operating margin of approximately 7% for Q3 2025 and 6% for fiscal year 2025.
Adjusted Free Cash Flow Margin: The adjusted free cash flow margin is expected to be approximately 6% for fiscal year 2025.
Cloud Revenue Projections: Cloud revenue as a percentage of subscription revenue is expected to be approximately 56% in Q3 2025 and 55% in Q4 2025.
AI Use Case Growth: Production AI use cases are expected to grow 10x in 2025 across a few hundred customers, expanding from experimentation to broader deployment.
Flink ARR Growth: Flink ARR is approaching $10 million, with growth accelerating for four consecutive quarters. The company expects continued strong contributions from both Confluent Cloud and Confluent Platform.
Partner Ecosystem Expansion: The company plans to deepen partnerships with system integrators and expand its partner ecosystem, which has sourced over 20% of its business. This is expected to fuel growth and accelerate global market penetration.
You have reached the limit. Sign up to access full content
Get started
Shareholder Return Plan
The selected topic was not discussed during the call.
You have reached the limit. Sign up to access full content
Get started
Key Q&A
Q:What are the consumption optimization trends discussed, and are they macro or company-specific?
A:The trends are similar to what has been seen across other companies, where customers aim to get the most value out of their purchases. This optimization has persisted longer for Confluent compared to other consumption companies. An AI-native customer is moving to a different operational model, leading to reduced spending and a headwind for Q4 cloud revenue. However, there is positive growth in RPO (31%), indicating increased customer commitments.
Q:How will production AI workloads impact subscription growth in the future?
A:Production AI workloads are seen as a positive driver for subscription growth. Streaming and processing are becoming essential for AI applications, as they require up-to-date context data. Flink, a key DSP product, has shown rapid growth, tripling in ARR to $10 million over six months. This growth is expected to continue and contribute to subscription growth.
Q:What operational enhancements is Ryan Mac Ban implementing, and how will they impact large customers?
A:Ryan Mac Ban is focusing on improving coverage ratios across AEs, SEs, and post-sale support, as well as building out the DSP specialist team. These changes aim to drive new use case acquisitions and improve customer alignment. Early indicators, such as a 40%+ increase in late-stage consumption pipeline from Q1 to Q2, suggest positive momentum.
Q:What is the approach to guidance for the back half of the year?
A:The guidance assumes month-over-month cloud growth rates will be notably below historical averages. Despite this, the fiscal year '25 subscription revenue guide has been raised at the midpoint, supported by strength in the CP business, visibility into the second-half pipeline, and green shoots in the cloud business, such as Flink momentum and larger multiyear customer commitments.
Q:How has the move to compensating sales reps on incremental consumption been received?
A:The change has been positive overall, aligning sales reps with company goals and unlocking new use cases. Adjustments have been made to optimize the model further, and it is helping drive results.
Q:What is the significance of Flink's growth, and why is it balanced between cloud and on-prem?
A:Flink has grown rapidly, tripling in ARR to $10 million in six months. It is a serverless offering in the cloud, leading to steady month-over-month growth. On-prem Flink appeals to larger customers with data centers, resulting in fewer but larger deployments. Both cloud and on-prem Flink are contributing to growth.
Q:Why has the $20,000 to $100,000 customer segment been weaker compared to other segments?
A:The $20,000 to $100,000 segment has been weaker due to less focus on landing new customers in this range. Efforts are being made to address this, including targeting CSP takeouts and improving alignment between SDRs and SEs.
Q:What is the impact of LinkedIn moving away from Kafka?
A:LinkedIn's decision to move away from Kafka is not seen as significant. It is an internal system change tied to their custom infrastructure and does not represent a competitive threat to Confluent.
Q:Are there competitive or pricing issues affecting Confluent Cloud's growth?
A:There has been no significant change in the competitive dynamic. Confluent's offerings are seen as stronger compared to cloud provider offerings. New pricing models, such as freight and enterprise clusters, are opening up new workloads and showing early success.
Q:What is the outlook for net revenue retention (NRR) and gross revenue retention (GRR)?
A:NRR and GRR are under pressure due to optimization and slower use case adoption. NRR dipped to 124%, and GRR was marginally below 90%. However, green shoots like Flink momentum and larger customer commitments are expected to provide tailwinds.
Q:What is the impact of the AI-native customer moving to Confluent Platform?
A:The move is specific to the customer's operational model and not indicative of a broader trend. AI opportunities are expected across both platform and cloud, depending on customer operations.
Q:What is the impact of optimization on cloud revenue growth?
A:Optimization by large customers is a headwind, but DSP growth is promising. Optimization includes combining clusters, compressing data, and contractual changes for discounts. DSP growth is expected to outweigh optimization effects over time.
Q:What is the focus of the CSP takeout initiative?
A:The CSP takeout initiative targets customers using cloud provider offerings, which are seen as less complete and more expensive. Early results show high win rates and quick deal progression.
Q:What is the impact of realignment efforts on customer acquisition?
A:Realignment efforts aim to improve focus on landing new customers, particularly in the $20,000 to $100,000 segment. Early results show positive momentum, and initiatives like CSP takeouts are expected to drive better performance.
Q:What is the outlook for core streaming cloud revenue growth?
A:Core streaming cloud revenue growth is slower compared to DSP growth due to optimization by large customers. DSP growth is in the early stages and is expected to become a more significant contributor over time.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the specific reasons for the weaker $20,000 to $100,000 customer segment performance, providing only general statements about focus and alignment. Additionally, they did not provide detailed metrics or timelines for the expected impact of realignment efforts and DSP growth on overall revenue.
You have reached the limit. Sign up to access full content
Get started
Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI agent
AI workload
ARR quarter
Bank
CSP offering
Chief
Cloud
Clusters
Conference
DSP use
EY
Infosys
Kreps Co
LLC Research
OEM program
Officer
Research Division
Rohan
Securities
WarpStream
alert
analytics AI
architecture
capability
case production
developer
enterprise streaming
infrastructure example
leader
messaging
offering success
optimization effort
overhead
partner ecosystem
partnership
power AI
provider
selling
user
value partner
volume
CFLT Transcript
Confluent, Inc. (CFLT) Presents at Global Technology, Internet, Media & Telecommunications Conference 2025 Transcript
Neutral11-18
Confluent, Inc. (CFLT) Q3 2025 Earnings Call Transcript
Positive10-27
The earnings call reflects strong growth in AI use cases and Flink, increased deal sizes, and positive momentum in cloud business despite some customer shifts. While management avoided some specifics, the overall sentiment from the Q&A is positive, emphasizing improved execution, strategic partnerships, and product traction. These factors, along with optimistic guidance, suggest a positive stock price movement.
Confluent, Inc. (CFLT) Presents At Goldman Sachs Communicopia + Technology Conference 2025 Transcript
Neutral9-8
Confluent, Inc. (CFLT) Q2 2025 Earnings Call Transcript
Positive7-30
The earnings call indicates strong growth in key areas like subscription and cloud revenue, along with significant customer additions and DSP adoption. Flink's rapid growth and strategic initiatives like CSP takeouts and sales compensation alignment suggest a positive outlook. Despite some pressure on NRR and GRR, optimistic guidance and operational enhancements provide a positive sentiment, likely leading to a stock price increase over the next two weeks.
CFLT Report
Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
How soon is the transcript available after the earnings call ends?
Full verbatim transcripts are typically published within 4–12 hours after the call ends. Same-day availability is guaranteed for all S&P 500 and most mid-cap companies.
Is the transcript edited or altered in any way?
No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.
Why do some answers appear as “Unclear” or “Inaudible”?
When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
